What is GAP Insurance? Definition and Examples

I decided to research and write about this subject as a friend of mine has recently had an accident on his motorcycle; fortunately nothing major but not nice all the same.

I was surprised to hear a few days ago that he is now in a terrible position as his bike is being written off by Insurers and the suggested settlement figure he has been offered will not clear the outstanding finance he originally took out to purchase the bike.

This got me to thinking that this must happen quite a lot and is there insurance out there somewhere that will protect the shortfall. …It turns out this is called GAP Insurance!

So, let’s break it down like this…

  1. What does GAP stand for?
  2. When should I consider taking out GAP Insurance?
  3. What types of GAP insurance are available?

What does GAP stand for?

GAP stands for Guaranteed Asset Protection.

When should I consider taking out GAP Insurance?

If you have purchased your vehicle using a personal loan, lease the vehicle or purchased it with cash you should seriously consider taking out some additional protection as you will almost certainly be in a negative equity situation until you have paid off a substantial amount of the agreement.

Vehicle values depreciate at an alarming rate, starting from the very moment you drive off of a forecourt.

A new vehicle is likely to be worth only around 40% of its original list price within 3 years of ownership.

Insurance companies are writing off more cars than ever due to the high cost of repairs and modern materials used.

When a write-off occurs you are responsible for any financial shortfall, not your motor insurer.

What types of GAP insurance are available?

There are two main types of protection available:

1. Lease or Finance GAP
In the event of your vehicle being declared a write-off by your motor insurers because of theft or an accident, there may be a shortfall between the vehicle’s current market value and the value required by the lease/finance company to settle the lease/finance agreement.

There could be a significant shortfall depending on the rate at which your vehicle has depreciated and the period that is remaining on the lease or finance agreement.

You will be held responsible for this shortfall by the companies involved.

GAP insurance would cover this shortfall for you as shown in the following example.

A vehicle is purchased for £18,335. 15 months later the vehicle is written off. The motor insurer settles £11,250 but the customer still owes the Lease or Finance company £13,175.

The GAP policy will pay the £1,925 shortfall direct to the Lease or Finance Company so that the agreement can be closed.

2. Protection if you purchase a new vehicle for cash
In the event of a write off Vehicle Replacement Insurance will cover the difference between your motor insurance payout and the cost of replacing your vehicle to the exact specification, even if the price of the new replacement car has increased. This is not available for used cars or any on contract hire or finance lease.

This type of GAP insurance is also known as Return to Invoice.

In this scenario if you purchased a vehicle for £15,000 and paid cash and the vehicle was later written off with a settlement figure of £12,750 from your motor insurers the policy would reimburse the shortfall amount of £2,250 to allow you to replace the vehicle with the same specification as the original.

I imagine our initial thoughts to all of this are that this will not happen to me, but you may want to consider the following alarming facts before dismissing this type of protection:

  • Over 200,000 cars are stolen every year and only 60% are recovered.
  • Around 500,000 vehicles are involved in serious accidents every year.
  • UK vehicle crime is now one third of all crime.
  • Your insurers will value your vehicle at the time of a claim, the offer they make will always be less than the price you paid.
  • Vehicles depreciate from the moment you purchase them.
  • A 3 year old vehicle may have lost as much as 60% of its value.

Do you have Gap Insurance? What are your impressions of this type of cover? Are you a GAP insurer? Let us know, we’d like to hear from you! Add a comment below!


  1. Really good article. We are an on line gap insurance broker and totally agree that not enough people know about gap insurance and how it works. Even if you have paid cash for a vehicle it can be worth considering. But don’t forget when it comes to gap insurance it is always about the claim limit. The claim limit is the maximum amount that your gap insurance policy will pay so when you are thinking of gap insurance always always ask about the claim limit esp if you are opting for vehicle replacement as in this type of cover you are protecting not just the amount your vehicle will lose buy also the increase in cost.

  2. Good piece highlighting the virtues of Gap Insurance, I would also add that as a Gap Insurance broker, the most popular form of Gap Insurance on new vehicles is now Vehicle Replacement Insurance, or VRI Gap Insurance.

    It works by covering the difference between the vehicle value at ‘write off’ and the cost of replacing the vehicle in the future. With return to invoice, the monye you invest today in your vehicle, may be some way short of the cost of the equivalent vehicle in the future (prices go up all the time!). Vehicle Replacement Insurance can cover this difference, so may be a little more comprehensive than Return to Invoice.

    Echo whta Jackie says about claim limit too, really important to consider that when you buy gap insurance

  3. Work at a collision repair facility and I’ve seen customers take their Totaled Out car and put it in storage just to make payments on a vehicle they cannot use because they were upside down on the car. The cost of purchasing GAP Insurence doesn’t really add to much more to your cost when purchasing a vehicle, so why not? Why find yourself in that situation.. And for that matter if it’s a used car, I’d buy any extended warranty that’s offered. It’s better to be safe (covered) than sorry.

  4. Having had my 2007 Range Rover Vogue written off by my insurers I was quitely confident my GAP insurance would cover the Invoice difference to the settlement offered in my case it made a huge difference and I will never buy a vehicle again without taking GAP Insurance out makes a HUGE difference and has given me the comfort of knowing I will not be out if pocket for a relatively low premium.

    My advice is take GAP insurance out its another cost however you cannot loose in a normal insurance claim.

Leave a Reply